When I add manufacturing wages to a production order, it appears as a contra account on my P&L hence driving my COGS the wrong way and so my Net profit increases yet wages are expenses…when I remove it from production order, I don’t think my average cost will be accurate
You may not completely understand the flow of debits and credits. While wages are debits, which lower net profit when posted directly to expense accounts, these debits are transferred to the asset account, Inventory on hand, when added as non-inventory costs on a production order. They reside in Inventory on hand until the finished good is sold, whereupon they are transferred to Inventory - cost as the cost of goods sold. Ultimately, the long-term effect is similar; that is, the wage ends up as an expense, lowering net profit. But, because the debit is temporarily tied up in the asset account, its final effect is delayed until the sale.
So is it ideal if I excluded manufacturing wages from production orders? And if I did so, I’d love to see it appear as an expense on the P&L statement. How do I do that
You can include or exclude whatever you want on production orders, subject to local law and accounting standards. To have wages appear in an expense account, just allocate the payslip earnings item to that account.
Appreciated highly…Thanks alot